Setting the Record Straight: Evaluating Ross Perot's AllegationsAgainst the NAFTA

The Clinton Administration on September 14 launched its campaign
to secure congressional ratification of the North American Free
Trade Agreement (NAFTA). (The NAFTA will be considered by Congress
later this year or early next year. It is a trade agreement between
the United States, Canada, and Mexico that will create the world's
largest open market, with a population of 370 million and a gross
domestic product (GDP) of some $7 trillion. It will do this by
eliminating most tariff and non-tariff barriers between the three
countries over a period of fifteen years.) Flanked by former
Presidents Gerald Ford, Jimmy Carter, and NAFTA architect George
Bush, Bill Clinton used the occasion of the signing of the side
accords on environmental and labor standards to kick off his
pro-NAFTA drive. Clinton's mission: convince the American people
and members of a dubious Congress that the free trade pact with
Canada and Mexico will create new U.S. jobs, expand exports, and
improve U.S. economic competitiveness.

However, the White House and other NAFTA supporters are facing
an uphill struggle. Anti-NAFTA forces, led by Texas billionaire H.
Ross Perot, conservative commentator Patrick Buchanan, civil rights
activist Jesse Jackson, consumer rights advocate Ralph Nader, and a
conglomeration of radical labor and environmental groups, have made
the defeat of the NAFTA their top priority.

Flat-Out IncorrectAt the forefront of this effort to derail the historic
free trade accord is Perot's book, Save Your Job, Save Our Country:
Why NAFTA Must be Stopped --Now!. (Ross Perot and Pat Choate, Save
Your Job, Save Our Country: Why NAFTA Must Be Stopped--Now! (New
York: Hyperion, 1993).) The book, co-written with economist Pat
Choate, an ardent union supporter and long-time protectionist,
alleges throughout its 142 pages that the U.S. has been "outtraded"
by Mexico and Canada in a "secret deal" that will undermine the
U.S. economy. Perot wrongly claims that cheap Mexican wages will
"suck" millions of high-paying American jobs south of the border
like a "giant vacuum" and that the U.S. manufacturing base will be
wiped out. The Perot and Choate book, which most independent
economists and trade experts regard as simplistic and flat-out
incorrect, overlooks the many factors, other than wage levels, that
actually drive business decisions and the location of factories.
(Economists or trade experts who disagree with Perot's allegation
include: Gary Clyde Huffbauer and Jeffrey J. Schott of the
Washington-based Institute for International Economics; Steven
Globerman and Michael Walker of the Fraser Institute in Canada;
Milton Friedman of the Hoover Institution; Rudiger Dornbush of the
Massachusetts Institute of Technology, Mexican economist Rugelio
Ramirez De la O, Paul Samuelson of the Massachusetts Institute of
Technology, and James Buchanan of George Mason University.) Perot
and Choate call the NAFTA a "drastic and unfair scheme" that will
pit American and Mexican workers "in a race to the bottom." (Perot
and Choate, p. i.) They also promote the myth, as does Pat
Buchanan, that the agreement will "radically reduce the sovereignty
of the United States" and that the "secret" agreement has been
forced upon the American people by crafty lobbyists, all paid for
by foreign governments and multinational corporations. (This theme
permeates the Perot and Choate book.)

Almost every independent and U.S. government study shows,
however, that Perot, Choate, and the other anti-NAFTA leaders are
dead wrong on the free trade pact. For example, it is estimated
that under the NAFTA there will be a net increase of 200,000 jobs
as a result of increased U.S. exports to Mexico. Today, trade with
Mexico alone sustains at least 700,000 jobs in the U.S. ("The
NAFTA: Expanding U.S. Exports, Jobs, and Growth," Clinton
Administration Statement on the North American Free Trade
Agreement, July 1993, p. 3.) Moreover, the NAFTA will help address
many of the other concerns raised by NAFTA critics. The agreement
will accelerate the rate of rising Mexican wages, it will address
environmental concerns along the border and inside Mexico, it will
help lock into place Mexican President Carlos Salinas de Gortari's
free market and democratic reform programs, and it will diminish
over time the flow of illegal immigrants and drugs across the U.S.
border.

Competing VisionsThe bipartisan gathering of NAFTA defenders that convened
at the White House on September 14 for the side accord ceremony
demonstrated that the battle lines on the trade pact are not drawn
along party lines, but rather according to two different economic
visions. Those that favor the NAFTA believe that U.S. workers can
compete and win in the global marketplace. They are also convinced
that free and expanded trade benefits all Americans. Opponents of
the free trade accord like Perot are inward-looking, favor the
status quo, and fear competing with other countries. Perot and
other NAFTA opponents believe that opening U.S. markets to foreign
goods greatly harms U.S. workers and the economy. They also argue
that U.S. sovereignty and security will be threatened if the NAFTA
goes through.

Perot and other NAFTA opponents misunderstand the economics of
the NAFTA. The bottom line is that the NAFTA is a "win-win"
agreement for America. After the NAFTA, the U.S. will eliminate an
average 4 percent tariff on Mexican goods, while Mexico will drop
its average 10 percent tariff on U.S. goods. As a result, it will
be easier to produce goods and services in the U.S. and sell them
to Mexico. Therefore, once the NAFTA is passed, American companies
will have less of an incentive to move south of the border to try
to penetrate the Mexican market.

There is another reason why the NAFTA is sound economics:
Mexicans purchase more U.S. imports per capita than do much
wealthier Japanese and Europeans. These exports to Mexico create
American jobs. As stated by Senator Bill Bradley, the Democrat from
New Jersey:

Defeating NAFTA won't create jobs,
control immigration, or clean the environment. Either we address
the problems of economic transformation head on, or we bury our
heads in the sand, blame NAFTA for situations it did not create,
and accept a lower standard of living and a fraying social
fabric.... NAFTA opens more than a trade door. It will enhance our
nation in ways that are absolutely critical to growth, progress,
and security in the 21st century." (Bill Bradley, "NAFTA Opens More
than a Trade Door," The Wall Street Journal, September 16,
1993.)

Myths Against NAFTA: Evaluating Perot's
Allegations

In their attempts to discredit the NAFTA, Perot, Choate, and
other critics often misrepresent the facts and distort the truth
about the agreement. Their arguments, nevertheless, have greatly
harmed the NAFTA's chances in Congress. Consequently, as Congress
begins its deliberation on the pros and cons of the NAFTA, it will
require clear and concise information on the merits of the pact.
Only then will it be able to distinguish between myth and reality.
The myths advanced in Perot's book are:

Myth #1: As many as 5.9 million jobs will be lost in the U.S. as
a result of the NAFTA. (This theme permeates the Perot and Choate
book.)

Reality:

Almost every independent study on the NAFTA predicts that there
will be a net gain in the number of U.S. jobs as a result of
expanded American exports to Mexico and new foreign investment in
the U.S. (See, for example: Larry Brookhart and Robert W. Wallace,
"Potential Impact on the U.S. Economy and Selected Industries of
the North American Free-Trade Agreement," USITC publication #2596.
(Washington, D.C.: U.S. International Trade Commission, January
1993); Rudiger Dornbusch, "NAFTA: Good Jobs at Good Wages," paper
presented at "NAFTA Summit: Beyond Party Politics," a conference
sponsored by The Brookings Institution, The Center for Strategic
and International Studies, and The Fraser Institute, (Washington,
D.C.: June 28-29, 1993); Steven Globerman and Michael Walker,
Assessing NAFTA: A Trinational Analysis (Vancouver, B.C.: The
Fraser Institute, 1993); Edward Hudgins, Ph.D., "Myths About
NAFTA," House Republican Conference Issue Brief, 1993; Gary Clyde
Hufbauer and Jeffrey J. Schott, NAFTA: An Assessment (Washington,
D.C.: Institute for International Economics, 1993); Paul A. London
and Jonathan Whittle (The Stern Group, Inc.), "Investment, Trade,
and U.S. Gains in the NAFTA" (Washington, D.C.: U.S. Council of the
Mexico-U.S. Business Committee, 1992). Alan Reynolds, "The Impact
of NAFTA on U.S. Wages and Jobs," paper presented at the Cato
Institute conference on The North American Free Trade Agreement,
Washington, D.C., June 8, 1993; Lenore Sek, "North American Free
Trade Agreement," Congressional Research Service Issue Brief, June
8, 1993.) Since Mexico began to open its economy in 1986, the
number of American workers producing merchandise exports to Mexico
has risen from 274,000 to an estimated 700,000 last year. With the
NAFTA, the nonpartisan International Trade Commission (ITC)
predicts, 200,000 more export-related jobs will be created by 1995.
It is estimated that for every $1 billion in increased exports,
22,800 jobs are created in the U.S. Since 1986, American exports to
Mexico have exploded from $12.6 billion to $40.6 billion last year.
As U.S. exports to Mexico increase under NAFTA, so too will the
U.S. job base. Moreover, Americans working in jobs related to
exports to Mexico make 12 percent more than the national average.
(For more information see: "Potential Impact on the U.S. Economy
and Selected Industries of the North American Free Trade
Agreement," U.S. International Trade Commission Report, January
1993.)

Even Clyde Prestowitz, the President of the Economic Strategy
Institute, a Washington-based think tank that once was strongly
against the NAFTA, now says that the pact should be ratified. Last
fall, Prestowitz claimed that the NAFTA would cost up to 222,000
jobs. Today, however, he argues that "NAFTA will be a plus in the
long run." His reasoning: Many U.S. companies will likely shut down
their operations in Mexico and return home once Mexico lowers its
trade barriers. If U.S. companies can penetrate the Mexican market
without confronting tariffs, one of the key rationales for locating
there in the first place disappears. Moreover, it is likely that
many U.S. corporations will move their Asian manufacturing
facilities to Mexico once the NAFTA is enacted, making it almost
certain that they would import components from the U.S., thereby
creating new U.S. jobs. (Bob Davis, "Prestowitz Shifts to Support
of NAFTA, Reconsiders Predictions of Job Losses," The Wall Street
Journal, September 17, 1993.)

According to Gary Hufbauer and Jeffrey Schott, authors of the
Institute for International Economics book NAFTA: An Assessment,
"If the NAFTA is rejected, the U.S. is likely to experience job
losses. Rejection of the NAFTA would probably cause capital to
leave Mexico. The resulting slowed Mexican growth and a potential
devaluation of its currency would contract Mexico's imports and
expand its exports, thereby slashing the U.S. trade surplus with
Mexico." ("NAFTA: A Win-Win-Win Situation for North America,"
Institute for International Economics News, February 17, 1993.)
While Hufbauer's and Schott's estimate of job increases is slightly
different from those predicted by the ITC or the Clinton
Administration, they still calculate that under the NAFTA, a gross
total of 316,000 U.S. jobs will be created, while a gross total of
145,000 U.S. jobs will be lost -- leading to a net gain of 171,000
new jobs. (Ibid.)

Myth #2: Lower wages in Mexico will encourage U.S. companies to
relocate their plants and factories there. (Perot and Choate, pp.
35 and 68.)

Reality:

Since labor represents only between 10 percent to 20 percent of
production costs for most businesses, Perot's argument about lower
wage levels in Mexico luring U.S. plants south of the border is
greatly exaggerated and in most cases wrong. (Keith Bradsher,
"Perot Leads Attack on Trade Agreement," The New York Times,
September 16, 1993, p. A20.) If U.S. companies were going to move
to Mexico, they would have already done so. The reason: there is
absolutely nothing stopping them from relocating there today.
Mexico has removed most of its restrictions on foreign investment
and ownership of manufacturing facilities. ("NAFTA: Summary and
Analysis," House Republican Conference Issues Brief, September 13,
1993, p. 3.) Moreover, wage levels in Mexico are not nearly as low
as many people believe and will rise steadily under the NAFTA. It
is estimated that Mexican wages have risen by 28.7 percent since
1987. Rapidly increasing wage levels in Mexico, combined with lower
productivity levels, often erases much of the wage advantage
anyway.

U.S. workers earn high wages because they are the most
productive workers in the world. By contrast, Mexico's wages are
low because the economy is poor. U.S. companies wishing to relocate
to Mexico must deal with the consequences of what is essentially a
Third World economy. For example, the operating costs for U.S.
firms doing business in Mexico are raised considerably by higher
levels of worker absenteeism, lower educational standards,
political instability, limited access to raw materials, and the
problems associated with long distance management. Consequently,
few companies base plant locations on a simple calculation of wage
differentials; for most U.S. manufacturers, the cost of labor is
less important than such factors as access to technology, the
skills of the local work force, and the quality of the
transportation network. If cheap labor were the sole determinant of
plant sites, then Perot and other U.S. industrialists would be
relocating their factories to countries like Haiti and
Nicaragua.

Perot and Choate clearly misrepresent the facts when making this
charge. The NAFTA benefits the U.S. economy and manufacturing base
because it levels the playing field of trade with Mexico. As far as
most imports from Mexico are concerned, the U.S. already practices
free trade. The NAFTA will mainly affect Mexican barriers against
U.S. goods. Mexico's average tariff barriers against U.S. exports
are 2.5 times higher than U.S. tariffs against imports from Mexico.
By contrast, over 50 percent of U.S. imports from Mexico already
enter duty-free and the average U.S. tariff on Mexican goods is
only 4 percent. Moreover, complex Mexican domestic licensing
requirements further impede U.S. exports to the Mexican market. The
NAFTA, however, will eliminate these non-tariff barriers.

Mexico is the United States' third largest and fastest growing
export market. Only Canada and Japan purchase more U.S. goods and
services. Only Canada buys more U.S. manufactured goods than
Mexico. Since 1986, U.S. exports to Mexico have increased by 228
percent to $40.6 billion -- 2.3 times faster than U.S. exports to
the rest of the world. Moreover, Mexicans buy more U.S. goods per
capita than do much wealthier European and Japanese consumers.
(Clyde Prestowitz, "NAFTA: Why we Hafta," The Washington Post,
September 19, 1993.) It is estimated that 70 cents of every dollar
that Mexico spends on foreign products is spent on U.S. goods. (For
more information, see "The NAFTA: Expanding U.S. Exports, Jobs, and
Growth," Clinton Administration Statement on the North American
Free Trade Agreement, July 1993, pp. 4-7.)

American exports of manufactured goods to Mexico have grown
rapidly since Mexico lowered its trade barriers in 1986. This rise
in U.S. exports to Mexico has added more than 400,000 new jobs to
the American economy. By increasing export opportunities, the free
trade accord will enable the U.S. to take advantage of its economic
strengths, which include high-wage, high-technology manufacturing.
U.S. exports to Mexico will jump by 46 percent by 1995, to $60
billion, compared with $41 billion last year. Six years ago the
figure stood at only $14.5 billion. (The Kiplinger Washington
Newsletter, September 10, 1993, p. 1.) This increase in trade, much
of which is in U.S.-manufactured goods, will undoubtedly help
fortify -- not damage -- the U.S. manufacturing base.

As pointed out by Hufbauer and Schott, Puerto Rico has enjoyed
free trade with the U.S. for decades. While a major gap still
separates manufacturing wages in the U.S. and Puerto Rico, American
jobs have not been lost as a result of the differential. Between
1970 and 1990, employment in Puerto Rico's manufacturing sector
rose only from 132,000 to 160,000 jobs, and those numbers fell as a
share of the work force from over 17 percent to under 15 percent.
If low wages were such a magnet for manufacturing activity, Puerto
Rico should have gained far more new jobs as a result of U.S.
companies relocating there. That did not happen. Moreover, the
proportion of the labor force engaged in manufacturing activity
should have risen, not fallen. (Hufbauer and Schott, op. cit., p.
12.)

Myth #4: NAFTA is not a free trade agreement, but an investment
agreement. (Perot and Choate, pp. 11, 68.)

Reality:

The protection and expansion of U.S. investments overseas has
been a cardinal principle of American foreign economic policy for
decades. American investment in foreign markets helps generate U.S.
exports, thereby creating new high-paying jobs at home. As a
business leader, Perot should understand that securing good
investment agreements are vital to reaching good trade agreements.
Investment agreements establish the legal groundrules under which
U.S. companies can invest in foreign countries. They also govern
issues such as taxation of the repatriation of profits.

While the NAFTA prohibits arbitrary seizure and expropriation of
foreign property, one of the major purposes of the free trade pact
is to remove Mexican laws that encourage U.S. firms to relocate to
Mexico. Under the NAFTA, the Mexican government will end policies
that require U.S. companies to operate inside Mexico in order to
sell to the Mexican market. U.S. companies will be able to sell
goods to Mexico without restriction. Furthermore, the NAFTA ensures
that U.S. companies doing business in Mexico will no longer be
forced to purchase Mexican-made goods. Instead they will be able to
use imported U.S.-made equipment and components.

The NAFTA negotiators have, in fact, produced a landmark
agreement on investment. The NAFTA commits the U.S., Canada, and
Mexico to provide national treatment to investors, meaning that
U.S. companies will be treated the same as domestic companies.
("NAFTA: A Win-Win-Win Situation for North America," p. 6.)
Moreover, the NAFTA also protects U.S. investors against
restrictions on the repatriation of capital, profits, and
royalties. In addition, private investors, under the rules of the
NAFTA, can seek binding arbitral rulings in trinational forums set
up under the agreement directly against the host government if
these rights are infringed upon.

Myth #5: NAFTA will turn Mexico into a "platform" that Japan,
Europe, and China can exploit to route their exports into the U.S.
(Perot and Choate, pp. 9-10.)

Reality:

Once again, Perot and Choate are misrepresenting the facts. As
with the 1989 U.S.-Canada Free Trade Agreement (FTA), the NAFTA
contains rules of origin to prevent non-member countries from using
one NAFTA country as a way to evade the trade restrictions of
another. For example, most motor vehicles are required to contain
62.5 percent of North American parts in order to qualify for
duty-free treatment. This rule of origin is meant to prevent
Japanese firms from using assembly plants in Mexico as a way to
bypass normal U.S. restrictions on U.S. imports. ("NAFTA: Summary
and Analysis," House Republican Conference Issue Brief, September
13, 1993, pp. 2-3.)

The International Trade Commission
also states that: the NAFTA's rules of origin are intended to
ensure that the benefits of tariff reductions will accrue
principally to the NAFTA parties and to provide incentives for
North American production and sourcing. To qualify as a North
American product under the NAFTA, a number of industrial sectors
will be subject to a stricter and more detailed change in tariff
classification rules, higher and more stringent value- content
requirements, and rules requiring that certain components and parts
be produced in North America. (The International Trade Commission,
op. cit., p. ix.)

In fact, the NAFTA's rules of origin are so strict in that some
free market economists fear that they will hinder foreign
investment and North American economic competitiveness. While rules
of origin are an integral part of all free trade pacts, they can be
used as protectionist tools to discriminate against foreign
competition. Strict rules of origin can penalize regional producers
by forcing them to buy their parts and components from less
efficient suppliers located within the free trade area. Moreover,
some economists argue that the NAFTA rules of origin could
establish a protectionist precedent for other preferential trade
pacts, thereby limiting global trade liberalization. (Hufbauer and
Schott, op. cit., pp. 5-6.)

This charge is false. The NAFTA stands as a model for resolving
outstanding disputes over intellectual property. The free trade
pact will ensure a high level of protection under Canadian and
Mexican law for U.S. owners of patents, copyrights, trademarks,
trade secrets, and integrated circuits, as well as safeguards for
computer programs, pharmaceutical inventions, and sound recordings.
The NAFTA obligates Canada and Mexico to enforce intellectual
property rights against infringement internally and at their
borders. By protecting intellectual property rights, the NAFTA will
help increase trade and diminish losses from piracy and
counterfeiting. This will lead to economic growth, new jobs, and
increased competitiveness in the U.S. ("Summary of Principal
Provisions of NAFTA," U.S. Department of State Dispatch, Volume 4,
No. 35, August 30, 1993, pp. 601-602.)

Myth #7:More U.S. companies will move to Mexico to take
advantage of the so-called maquiladora program if the NAFTA is
passed. (Perot and Choate, pp. 31, 48-50.)

Reality:

U.S. companies have been operating assembly plants, known as
maquiladoras, along the U.S.-Mexico border since 1965. Under this
program, components made in the U.S. are sent to Mexican plants for
assembly, utilizing Mexico's less expensive labor. The finished
product is then shipped duty-free to the U.S. or exported
elsewhere.

Despite charges by Perot and others that the maquiladora program
has hurt the U.S. economy, it has not caused a net loss of U.S.
jobs. To the contrary, by reducing labor costs, this program has
allowed U.S. manufacturers to remain globally competitive and keep
their U.S. plants operating. (For more information see: Wesley R.
Smith, "The NAFTA Debate, Part I: A Primer on Labor, Environmental,
and Legal Issues," Heritage Foundation Backgrounder No. 936, April
9, 1993.)

According to the Office of the U.S. Trade Representative (USTR),
the maquiladora program will effectively end once the NAFTA is in
place; all imported parts from the U.S. will enter Mexico without
custom changes or conditions. The free trade pact, moreover, will
eliminate maquiladora rules that prevent Mexican-based U.S.
companies from selling their products in Mexico. Maquiladoras can
now sell only 20 percent of their products in Mexico. (U.S.
Department of Labor, "Economic Discussion Paper #29," August 1988,
p. 17.) Under the NAFTA, there will be no such restrictions.
Instead, U.S. maquiladoras will be allowed to sell 100 percent of
their products in the Mexican market. Perot and Choate claim that
most U.S. exports to Mexico have been funneled through the
maquiladoras to the U.S. for re-export. This is incorrect. Instead,
an estimated 83 percent of U.S. export growth to Mexico has been
for Mexican consumption, and not for re-export. (Correcting the
Record: Response of the Office of the U.S. Trade Representative to
the Perot/Choate NAFTA Book, September 2, 1993, p. 27.)

Myth #8:Low wages will lead U.S. automotive companies to
relocate their plants to Mexico, thereby threatening the jobs of
U.S. auto workers. (Perot and Choate, pp. 9-10 and 31-33.)

Reality:

A study of the NAFTA by the U.S. Office of Technology (OTA)
demonstrates that such assertions by Perot and Choate are
unfounded. The OTA reports that it costs a Mexican plant $9,180 to
deliver a car to the U.S. market, compared to $8,770 for a U.S.
auto maker. ("U.S.-Mexico Trade: Pulling Together of Pulling
Apart," Congress of the United States, Office of Technology
Assessment, October 1992.) Mexico's high shipping, parts, and
inventory costs more than offset its lower labor costs.
Furthermore, the U.S. cost advantage grows as Mexican wages rise.
Under the NAFTA, moreover, U.S. exports of automobiles to Mexico
will greatly increase, thereby increasing jobs in the American
automotive industry.

There is another problem with Perot's and Choate's analysis.
They fail to acknowledge that the current U.S. tariff on Mexican
automobiles is only 2.5 percent. In contrast, Mexico's tariff on
U.S.- made cars is 20 percent, or eight times higher than the U.S.
duty. Under the free trade pact with Mexico, this tariff will be
cut in half almost immediately and then fully eliminated over the
next nine years. The Big Three U.S. auto producers estimate that
the NAFTA will increase annual U.S. exports to Mexico from 1,000
vehicles a year today to over 60,000 vehicles in the first year of
the free trade accord. (The Kiplinger Washington Letter, September
10, 1993, p. 1.)

The NAFTA also will end the requirement for U.S. automotive
companies to manufacture in Mexico in order to sell there.
Moreover, it will eliminate Mexican local content and local
production requirements that have encouraged U.S. automobile and
parts manufacturers to move production and jobs to Mexico. With
NAFTA, the U.S. will be able to increase significantly automobile
and auto parts exports to Mexico. Without the NAFTA, Mexico will
almost certainly maintain its high tariff and non-tariff barriers
on U.S. cars. (Correcting the Record, pp. 5 and 23.)

Myth #9: The NAFTA will hurt U.S. farmers and agricultural
interests. (Perot and Choate, pp. 10-11.)

Reality:

Under the NAFTA, the U.S. and Mexico will eliminate all tariffs,
import quotas, and licenses on all agricultural products on January
1, 1994. However, according to economists Steven Globerman and
Michael Walker, "The agriculture sector is politically sensitive to
[trade] liberalization, and this was acknowledged by the longer
transition period (15 years) granted for certain products both for
the U.S. and Mexico. Special treatment was given to sugar, frozen
orange juice concentrate, peanuts, and certain fruits and
vegetables (asparagus, broccoli, cantaloupe, and cucumbers) for the
U.S. and for corn, dry beans, and milk powder for Mexico."
(Globerman and Walker, op. cit. p. 150.) Both the Bush and Clinton
Administrations have predicted that the U.S. agriculture sector and
American farmer will be big winners under the NAFTA. Conservative
estimates show an expected increase of $2 billion to $2.5 billion
in U.S. agricultural exports annually to Mexico by the end of the
transition period.

The NAFTA will end decades of agricultural socialism in Mexico.
By opening up the Mexican market to U.S. agricultural products and
equipment, the U.S. economy will benefit and millions of jobs will
be created. Moreover, under the NAFTA, U.S. investment in Mexican
agriculture, which was once shunned, will now be encouraged.
Finally, American consumers will benefit under the NAFTA because
they will have a wider variety of food products at a lower
cost.

Myth #10: Since the NAFTA was not submitted to Congress prior to
June 1, 1993, it is not covered under the so-called fast track
trade authority. (Perot and Choate, pp. 14-16.)

Reality:

Fast track trade authority, which has been used by U.S.
Presidents since 1974, is essential for negotiating and ratifying
free trade pacts. Fast track powers allow the White House to
negotiate trade accords without the threat of the many
congressional amendments that would almost certainly kill most
trade agreements. Moreover, they call for an up-or-down vote once
the agreement is submitted to Congress. Perot and Choate contend
that the fast track powers no longer apply to the NAFTA since the
pact was not sent to Congress prior to June 1, 1993, when the
two-year fast track authority ended.

Once again Perot and Choate do not understand the facts. In a
report titled Correcting the Record, the USTR calls this passage in
the book "pure fiction." It stresses that because of the 1991 fast
track legislation, fast track procedures remain available for trade
agreements signed by the U.S. President prior to May 31, 1993.
President Bush signed the NAFTA on December 17, 1992, over five
months prior to the deadline. Consequently, the USTR correctly
states that "fast track procedures [are] still available for NAFTA;
no new legislation [is] needed."

Myth #11: The fast track authority gave President Bush the
authority to negotiate the agreement "in complete secrecy without
the participation of either Congress or the U.S. public." (Perot
and Choate, p. 14.)

Reality:

On the contrary, no trade agreement in history has been the
subject of as many consultations as the NAFTA. During the
negotiation process, the Administration held nearly 1,000
consultations or briefings with individuals outside the executive
branch. These included public hearings at which hundreds of
individuals testified, 350 meetings with official advisory
committees, and repeated contacts with key members of the House and
Senate.

Myth #12: Some regions of the U.S., especially the midwestern
states, will be hurt by the NAFTA. (Perot and Choate, pp.
34-37.)

Reality:

A June 1993 study by The Heritage Foundation demonstrates that
the NAFTA will benefit the country as a whole, not just one or two
particular regions. (Douglas Seay and Wesley Smith, "Why the
Governors Support the NAFTA (And Washington Doesn't)," Heritage
Foundation Backgrounder No. 946, June 15, 1993.) According to the
study, at least 41 of the country's fifty governors support the
agreement, with the others remaining undecided. Their confidence in
the NAFTA stems from the fact that most states already have seen
sharp increases in exports to Mexico over the last five years. The
U.S. Department of Commerce estimates that nearly every state in
the nation has benefitted from increased trade with Mexico, with
every region in the U.S. posting large increases in exports to
Mexico last year. (Statistics provided by the U.S. Department of
Commerce.) According to their figures, 31 states doubled their
exports to Mexico, while fifteen states tripled their exports. In
fact, the industrial midwest -- home to such NAFTA opponents as
Democrat Representatives David Bonior of Michigan and Marcy Kaptur
of Ohio -- posted a 90 percent increase in exports to Mexico just
since 1987. Other examples from the same period of time: Illinois
turned in a 417 percent increase; Wisconsin, a 247 percent
increase; Ohio, a 188 percent increase; Indiana, a 30 percent
increase; and Michigan, a 32 percent increase. (Statistics provided
by the U.S. Department of Commerce.)

The NAFTA does more than any trade agreement in history to
protect the environment. The NAFTA explicitly ensures America's
right to safeguard its environment, while encouraging Canada and
Mexico to strengthen their environmental standards.

The NAFTA side accords create a North American Commission on the
Environment which will oversee the enforcement of each country's
environmental laws. Any individual, business, independent
organization, or government will be able to file a complaint with
the commission. Disputes over one country's repeated failure to
enforce its national labor and environmental standards will be
mediated by the commission. If the matter cannot be resolved
effectively, the disagreement will be forwarded to an arbitration
panel of independent experts. If the panel finds that a signatory
country has persistently failed to comply with already agreed-upon
standards, it will then be free to impose fines. If violations
persist, trade sanctions in the form of quotas and tariffs could be
placed on the violating country with a maximum financial loss of
$20 million per year. Moreover, if the NAFTA goes through, the
White House has agreed to establish a $4 billion environment fund
to clean up the 2,000-mile border with Mexico.

Because of the NAFTA's efforts to protect and clean the
environment, several prominent environmental groups have voiced
their support of the free trade pact. Last September 16, the
leaders of six environmental groups, including the National Audubon
Society and the National Wildlife Federation, vowed that they would
help the White House fight for congressional passage of the NAFTA.
They view the NAFTA as the only mechanism for improving
environmental conditions in Mexico and along the border. If the
NAFTA is defeated and Mexico remains a poor nation, it will not
have the resources or the motivation to take strong steps to
safeguard the environment. (Keith Schneider, "Environmental Groups
are Split on Support for Free-Trade Pact," The New York Times,
September 16, 1993.) According to Kathryn Fuller, President of the
World Wildlife Fund, "Our support of NAFTA boiled down to this: The
environment in North America -- and the global environment, for
that matter -- will be better off with NAFTA than without it." (Bob
Dart, "Six National Groups on Environment Endorse NAFTA," The
Washington Times, September 21, 1993.)

The NAFTA permits the U.S. or any individual state or city to
set its own health and sanitary standards as high as it wants, as
long as it shows a scientific basis for its standards and it treats
domestic products the same way as imports. (J.W. Anderson, "Perot's
Little Book of NAFTA Nonsense," The Washington Post, September 5,
1993.) Moreover, the supplemental agreements to the NAFTA include a
commitment by the three signatories to "harmonize standards upward"
for food and health regulations. While the NAFTA's provisions will
discourage a "downward harmonization" of health and safety
standards, it does not require the U.S. to change any particular
standards. Instead, claims the U.S.Trade Representative, "the NAFTA
creates a process by which the three countries can try to reach
greater compatibility of standards, but does not require [the U.S.]
to agree to any particular change in standard." (Correcting the
Record, pp. 48-49.)

Myth #15: The NAFTA jeopardizes the safety of American travelers
by opening U.S. roads and highways to Mexican trucks and drivers
that do not meet minimum U.S. safety standards. (Perot and Choate,
pp. 3-6.)

Reality:

There is not a single provision in the NAFTA agreement that
exempts Mexican vehicles or drivers from U.S. safety and
environmental standards. All Mexican trucks entering U.S. territory
will have to comply fully with all applicable safety and emissions
standards, and these will be enforced regardless of the nationality
of the operator. All U.S. safety regulations on truck weight, size,
brakes, and servicing will be enforced against Mexican drivers. So,
too, will be U.S. regulations covering the expertise of the drivers
and their ability to read and speak English. Moreover, Mexican
drivers will be tested for licensing according to a standard that
is fully compatible with that in the U.S.

Myth #16: Under the NAFTA, smuggling drugs into the U.S will
become much easier. (Perot and Choate, pp. 6-7.)

Reality:

Once again, Perot and Choate are misguided. Under the NAFTA,
border control will gradually be expanded. In fact, since U.S.
Customs agents will be focusing increasingly less on the assessment
and collection of tariffs, they and other officials will have more
time to inspect shipments for illegal narcotics.

If the free trade pact is passed, moreover, the improved ties
between the U.S. and Mexico will be cemented and cooperation in law
enforcement efforts will grow. The economic benefits that the NAFTA
will bring to Mexico will also allow it to dedicate more of its own
resources to fighting the drug trade. More important, free trade
with the U.S. will generate new and better paying jobs in Mexico,
thereby making it more likely that Mexicans will reject the
temptation to engage in the narcotics business. The use of Mexico's
agricultural land for drug crops also will likely decline over time
as more acreage of legal export crops are produced for export to
the U.S. The removal of U.S. trade barriers on Mexican fruits,
vegetables, and other agricultural products will reduce the
incentive to grow such illegal crops as marijuana and opium
poppies. (See Michael G. Wilson, "The NAFTA Debate, Part II: A
Primer on Political, Security, and Human Rights Issues," Heritage
Foundation Backgrounder No. 950, July 19, 1993, pp. 6-8.) As the
U.S. Trade Representative's office argues, "Nothing in the NAFTA
limits [the U.S.] ability to stop illegal drugs" flowing across the
border.

According to a senior anti-narcotics official in the U.S.
government, who wishes to remain unnamed, a rejection of the NAFTA
would result in "a serious setback in U.S.-Mexican cooperation in
the fight against drug trafficking." Salinas would view it as "a
slap in the face," says the official, and the Mexican government
would likely be far less willing to work closely with the U.S. to
interdict drugs and destroy drug crops in Mexico.

Myth #17: The NAFTA will increase illegal immigration in the
U.S. (Perot and Choate, p. 72.)

Reality:

For many years, large numbers of Mexican workers have been
coming to the U.S., legally or illegally, in search of higher wages
and a better life. In 1990, for example, there were approximately
4.5 million Mexican-born residents in the U.S. This number, which
does not count all illegal aliens, represents about 21 percent of
all foreign- born residents. Germans, with 1.2 million residents,
or 5.4 percent of foreign-born residents, make up the second
largest group. ("U.S.-Mexico Trade: Pulling Together or Pulling
Apart?," Office of Technology Assessment, U.S. Congress, January
1993, pp. 116-117.) Moreover, in 1992 alone, the U.S. Border Patrol
arrested 1.2 million people attempting to cross illegally into the
U.S. from Mexico. ("Mexico: Respect Restored," The Economist,
February 13, 1993, p. 4.)

Many people argue that these immigrants have contributed greatly
to the U.S. economy and culture, helping businesses survive labor
shortages and making the U.S. economy more productive. Others,
however, contend that too many illegal immigrants are entering the
U.S., straining social services and taking jobs away from American
workers.

As economic growth in Mexico leads to gains in wages and living
standards, some of the pressure to emigrate to the U.S. will abate.
The expected increase in foreign direct investment in Mexico under
a NAFTA is estimated to range from $25 billion to $52 billion from
1992 to 2000. ("Investment, Trade, and U.S. Gains in the NAFTA,"
U.S. Council of the Mexico-U.S. Business Committee, The Council of
the Americas, 1992, p. 12.) As a result, economic growth rates in
Mexico under the free trade pact could reach as high as 6 percent a
year over the next decade. Such high growth rates will produce an
estimated 609,000 new jobs south of the border. (Hufbauer and
Schott, op. cit.) Finding jobs in Mexico will eliminate one of the
main incentives for Mexicans to leave their homes for the U.S.

These new jobs in Mexico will also pay better wages. With the
NAFTA, wages in Mexico are expected to grow by as much as 16
percent in the coming years. (Wilson, op. cit. pp. 8-9.) The allure
of higher- paying and better-quality jobs in Mexico will almost
certainly convince many Mexicans to stay at home and contribute to
their own economy. Polls indicate that when given a choice between
staying in Mexico and working, or illegally crossing the border to
work in the U.S., the vast majority of Mexicans surveyed said that
they would rather stay in their own country.

By contrast, a rejection of the NAFTA could drive down wage
levels in Mexico and slow down the growth in new export-related
jobs. This would diminish the standard of living in Mexico, making
it more likely that Mexican citizens will cross the border
illegally into the U.S. seeking employment. Moreover, if new trade
barriers are erected between the U.S. and Mexico, farmers and
industries in U.S. border states like California and Texas also
will see their businesses damaged and revenues fall. It is possible
then that they would be more tempted to hire illegal aliens as a
cost-cutting measure, thereby actually increasing the number of
illegal immigrants in the U.S. (Estimates of undocumented
immigration are by nature unreliable. However, the total number of
illegal residents in the U.S. is thought to be in the range of 2
million to 3 million, increasing at about 200,000 a year. Mexican
are believed to make up two-thirds to three-fourths of the
undocumented population, with many of the others from elsewhere in
Latin America.)

Conclusion

Ross Perot and Pat Choate conclude their book by saying: "The
first action that is required of Congress is to reject NAFTA.
Congress' second action should be to reauthorize the president to
negotiate a win-win trade deal with Mexico." (Perot and Choate, pp.
102-103.)

A rejection of the NAFTA would dramatically curtail trade
opportunities with America's fastest growing foreign market. It
would also result in soured U.S.-Mexico relations and a setback in
President Salinas's free market and democratic reform program.
Moreover, a failure of the free trade agreement would not only halt
the spread of free trade in the rest of Latin America and the
Caribbean, but dampen as well the prospects for reaching an
agreement in the Uruguay Round of the General Agreement on Tariffs
and Trade talks in Geneva.

Belief in AmericaNAFTA opponents believe that America cannot compete in the
global market. NAFTA supporters, on the other hand, believe in
America's strength and ability to compete. The choice, therefore,
is clear: does the U.S. wish to risk job loss and possibly economic
depression as the result of isolationism and protectionism? Or does
the U.S. want to take a leadership role in the global economic
community, seeking out new markets for its goods and investments,
thereby making American more competitive and creating new, higher-
paying jobs?

For Robert Matsui, the California Democrat, and Jim Kolbe, the
Arizona Republican, the choice is clear. As they stated in a May 28
letter to Perot, "Growing trade is an important engine of economic
growth. What greater proof of this is there than the period of
prosperity that has been enjoyed by the United States and the West
since World War II.... Circling the wagons and ignoring our trading
partners will not only hurt us competitively, but will also
disadvantage our whole region as a trading force in the
international market. We firmly believe that NAFTA will promote
growth and employment in our country... and continue our role as
the dominant and competitive force in the world."